Wednesday, February 19, 2014

The Chinese are stealing from Americans

Offenders in
many countries threaten American Intellectual property, but China-based
offenders are the greatest.2

Experts believe that over 90% of
the consumer goods sold in the city of Yiwu, regarded as the counterfeit
capital of China, are counterfeit. Each of the 300 private showrooms in Yu Bao
Lu, a facility in Yiwu, represents a factory that specializes in fake goods.
Even the capital city of Beijing is host to an outdoor counterfeit market
called “Treasure Street.” Places like Yiwu and Treasure Street provide
counterfeit items ranging from car inspection stickers and college diplomas to
designer clothing, computer software and even pharmaceutical products. Literary
counterfeiters even produce Harry Potter books in Chinese that do not exist in
English.3

This is truly
unfortunate. The current value
of United States rights holders‘ IP is estimated to be in the hundreds of
billions to trillions of dollars.4 Intangible ideas have tangible
value. Chinese counterfeiters are stealing value from American innovators.

When I write
‘innovation’, I mean a mental process which creates value by finding better
ways to do things. Economic growth right now does not come from ever increasing
economies of scale. It comes from new knowledge and original ideas. Things like
Information tech and financial engineering are intangible, yet they are vital
sources of growth for the last few decades. The value of the internet does not
stem from an investment of manual labor, like clearing a field or building a
factory. It comes from an original and useful idea.

What is egregious
is that IP theft hampers economic growth; we are losing future prosperity to
counterfeiters. IP rights are what make innovation financially feasible and
desirable. Not only does IP theft take from the current earnings of U.S.
citizens, it also disincentivizes them to invest time and capital into
innovation and invention. IP theft steals the rewards of creative endeavor.
Take away the reward, and the behavior goes away.

Recent examples of IP include the I-Phone,
Google’s search engine, and FaceBook. IP rights helped motivate many of the
appliances we take for granted: microwaves, refrigerators, coffeemakers, etc.
IP rights also make it financially feasible for artists, musicians, and writers
to devote themselves to producing our entertainment.

One of the
things that incentivize people to make things is an exclusive right on their
idea for some time after its creation. If the idea is useful, then this
monopoly right is profitable. Thus, monopoly rights in the form of patents,
copyrights, trademarks, and trade secrets, incentivize creativity and grow the
economy. Violate this monopoly right, and you violate the motive to invent.

One may
point out that there is plenty of IP violation among Americans regarding
music and video entertainment, yet these industries still produce the things we
want. Though these industries exist, they are cut short of their potential. Here
are some facts about the music industry: Recorded music revenue is down 64
percent since 1999. Per capita spending on music is 47 percent lower than it
was in 1973. The number of professional musicians has fallen 25 percent since
2000.5 There is less incentive to produce music, so there is less
music for us to enjoy and less jobs in the music industry.

One may
object that monopoly rights are bad for consumers. After all, the data above
indicates less profit for the producers; perhaps some of this surplus is going
to consumers. In the short-term, patents and other forms of IP are not ideal
for consumers. But patents, copyrights, etc. are only temporary monopolies, so
eventually IP enters a competitive market and remains there for posterity. If
these monopoly rights didn’t exist, then no one would create these useful ideas
nearly as much. It is better to have a new idea with a temporary monopoly, than
not have a new idea. In the long-term, IP rights are beneficial. We can’t have
our cake and eat it too.

Back to why
we should be upset about Chinese IP violations. It is unjust: it steals hard
earned value from creative Americans. It is detrimental to the public
wellbeing: after patents expire, they become public information available to
anyone. IP creates value for everybody. If the

Chinese steal from creative
minds, we lose this value.

The U.S.
government should re-evaluate its trade relationship with China. One of the
foremost jobs of government is protecting the property of citizens. By
tolerating Chinese IP theft, our government is failing in one of its key
functions.